Qualified Disaster Relief Payments

Qualified disaster relief payments are not included in income. These payments are not subject to income tax, self-employment tax, or employment taxes (social security, Medicare, and federal unemployment taxes). No withholding applies to these payments.

Qualified disaster relief payments include payments you receive (regardless of the source) after September 10, 2001, for the following expenses.

Reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a terrorist attack.

Reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence due to a terrorist attack. (A personal residence can be a rented residence or one you own.)

Reasonable and necessary expenses incurred for the repair or replacement of the contents of a personal residence due to a terrorist attack.

Qualified disaster relief payments also include the following.

Payments made by common carriers (for example, American Airlines and United Airlines regarding the September 11 attacks) because of death or physical injury incurred as a result of a terrorist attack.

Amounts paid by a federal, state, or local government in connection with a terrorist attack to those affected by the attack.

Qualified disaster relief payments do not include:

Insurance or other reimbursements for expenses, or

Income replacement payments, such as payments of lost wages, lost business income, or unemployment compensation.

Disability Payments

For tax years ending after September 10, 2001, disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States (or its allies), whether outside or within the United States, are not included in income.

Death Benefits

Payments received by an individual or the estate of a decedent from the employer of an employee who died as a result of the Oklahoma City or September 11 terrorist attacks, or as a result of the anthrax attacks, are not included in income. Only the amount that exceeds the benefits that would have been payable if the death had occurred for a reason other than a terrorist or anthrax attack is excludable. However, the exclusion does apply to incidental death benefits paid under a qualified retirement plan even if these amounts would have been payable if the death had occurred for a reason other than a terrorist or anthrax attack.

If you included death benefits in income on a previously filed return and they are now excludable under the above rule, file Form 1040X to amend that return. For information on the period for filing Form 1040X, see Period for filing claim for credit or refund earlier under Refund of Taxes Paid. If that period has expired, you are granted an extension. You have until January 22, 2003, to file Form 1040X to exclude the death benefits. On top of page 1 of Form 1040X, write "Extension of Limitations Under PL 107–134, sec. 102(b)(2)."

Bureau of Justice Assistance payments.

If you are a surviving dependent of a public safety officer (law enforcement officer or firefighter) who died in the line of duty, do not include in your income the death benefit paid to you by the Bureau of Justice Assistance.

Government plan annuity.

If you receive a survivor annuity as the child or spouse (or former spouse) of a public safety officer who was killed in the line of duty, you generally do not have to include it in income. This exclusion applies to the amount of the annuity based on the officer's service as a public safety officer.

For this purpose, the term public safety officer includes police and law enforcement officers, firefighters, and rescue squad and ambulance crews.